The EPA and Biofuels: Smart Goals, but an Outdated Roadmap

It may sound backwards, but the EPA’s proposal at the end of last week to reduce the 2014 biofuels mandates in the Renewable Fuels Standard (RFS) is just what we need to make sure we realize the promise of truly low carbon biofuels that cut oil use while minimizing competition with food. But while adjusting mandates in light of up-to-date data is smart, the EPA’s proposal goes too far, and could slow forward progress. Before finalizing the rule, the EPA should carefully balance near term challenges with the need to maintain progress toward long term oil saving and climate goals.

I am a staunch defender of the RFS, because it has smart goals that help us cut oil use and reduce carbon pollution from transportation. The RFS also moves the biofuels industry in the right direction, progressing from today’s corn ethanol to lower carbon advanced and cellulosic biofuels. Such fuels allow us to make even bigger reductions in oil use, without excessive pressure on food markets.

That said, while the RFS goals are smart, the detailed roadmap for implementation is seriously out of date. Two major challenges have emerged which require particular attention:

Cellulosic biofuels play an important role in the EPA’s RFS. Image credit: Niels BD

Cellulosic biofuels are behind schedule

According to the original schedule, cellulosic biofuels should deliver three fourths of the growth in biofuels production between now and 2022. But the hope that we could have 16 billion gallons of the stuff in 2022 is no longer realistic.

By my simple estimates, 2030 is the soonest we can realistically anticipate reaching this goal. This does not mean we don’t need low carbon cellulosic biofuels, but it does mean we need realistic expectations to guide our path forward. We have been urging the EPA to recognize this and update their roadmap for all biofuels based on the delayed availability of large volumes of cellulosic biofuels. In this proposal the EPA is doing just that.

Moving past the “blend wall”

Essentially there is a mismatch between the mandated levels of biofuel use, most of which is ethanol, and the fueling infrastructure to use it. Much of myanalysis and argument about the future of the RFS focuses on the oil saving potential of biofuels over the next 20 years, but E10 blending constraints must be addressed relatively soon so that the RFS survives for the long term.

The gasoline powered cars on the road can all use E10, and that’s what most gas stations sell. But going forward, the RFS mandates imply that an E10 blend is not sufficient to meet the targets. I will have a lot more to say about this in my next blog, coming soon, in which I describe a congressional briefing I did with Professor Bruce Babcock from Iowa State University, who has done a lot of work in this area recently. To preview our findings: E10 is not the end of the road for biofuels, or even for ethanol.

Yet the fueling infrastructure challenge is a significant speed bump on the road to better biofuels, and will require the EPA to carefully assess how fast mandates can realistically grow beyond the E10 blending level.

A need for adjustments

Without adjustment, the RFS is quickly becoming untenable. Forecasters of the energy and agricultural markets have ceased to treat the 36 BG target for 2022 (called for when Congress created the RFS in 2007) as credible, and confusion about the future policy environment has already created policy instability that stopped the flow of investment needed to make progress on advanced and cellulosic biofuels. A number of advanced biofuel companies have already responded to the EPA’s announcement by expressing concern over the lack of policy certainty, and the chilling effect that has on investment in the industry. My expectation is that more realistic policy targets will ultimately stabilize policy, and that a stable policy is the foundation needed to support investment and realize the long term goals of the RFS.

It’s disappointing to acknowledge the delay, and the process of revising the targets is sure to be messy. This would have been easier if the EPA had started this process last year, as we urged, but that is ancient history. Now is the time to grapple with these challenges.

The EPA’s proposal appears to be an over-correction

The EPA’s task is to make adjustments that address the real short term challenges while maintaining forward progress towards advanced biofuels. Several key experts that I respect have offered specific analysis and guidance for 2014:

The EPA’s proposal goes considerably farther than these experts (and I) suggest. Rather than slowing the speed of growth, by holding the 2014 mandates at 2013 levels, the EPA proposal cuts it all the way back to nearly 2012 levels. When you get into the nitty-gritty of the EPA’s 2014 proposal, the first and in some respects most critical question is how quickly the mandates can realistically advance beyond the E10 blending level. This will be the subject of my next post.

The EPA still has some fine tuning to do

Public participation is important to many administrative processes, but the comment period for the 2014 RFS volumes is especially important. The EPA’s proposal marks a significant change in two critical ways. First they are using their discretion to set targets under the RFS, and second they are grappling with the importance of infrastructure constraints to the forward progress of the policy.

They have to make complex decisions and balance competing priorities, and a lot is at stake for the future of fuels. They need data and guidance from experts, stakeholders and the public. The public comment period will likely run through the end of January: as we review the details of the rule we will be coming back to you here with thoughts on the smart path forward and opportunities to weigh in.

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